Greece: Default or Grexit?
A Greek default does not mean an inevitable Grexit. But even in the event of a default in the Eurozone, the costs to Greece of staying in the Eurozone are set to rise.
Read more...Category Archives: Economic fundamentals
Gaius Publius: Hillary Clinton, Progressives & the Uphill Climb
Aversion to Hillary Clinton among bona fide progressives is far more acute than Democratic party loyalists recognize.
Read more...Quick Note on Slavery, Finance, Minsky, and the Panic of 1837
Looking at slavery from the financial perspective, 1837 looks a lot like the Crash of 2007 – 2008.
Read more...Michael Pettis: Will China’s Asian Infrastructure Investment Bank Eventually Matter?
The financial media has attributed considerable importance to the fact that many of America’s close allies, including the UK, Australia, and Israel, have joined China’s new infrastructure bank against the clearly-stated desires of the US. While these moves seem to signal America’s declining influence, it does not necessarily follow that the infrastructure bank is destined to become a major international institution any time soon.
Michael Pettis deflates some of the hype surrounding this initiative, arguing that it is less significant from a geopolitical and practical perspective than virtually all commentators assume. China is simply not about to become the issuer of the reserve currency any time soon, and that limits how much financial clout it will have.
Read more...Debunking the Causes of the Eurozone Crisis
The orthodox German view of the Eurozone crisis gets shellacked at an important INET panel.
Read more...Should We Be Spooked by Deflation? A Look at the Historical Record
Concerns about deflation – falling prices of goods and services – are rooted in the view that it is very costly. This column tests the historical link between output growth and deflation in a sample covering 140 years for up to 38 economies. The evidence suggests that this link is weak and derives largely from the Great Depression. The authors find a stronger link between output growth and asset price deflations, particularly during postwar property price deflations. There is no evidence that high debt has so far raised the cost of goods and services price deflations, in so-called debt deflations. The most damaging interaction appears to be between property price deflations and private debt.
Read more...Herr Schäuble’s Foibles: The Eurozone Rebalancing Conundrum
Until we jettison the neoliberal liturgy repeated daily in the press, universities, central banks, and Treasury departments, Schäuble’s Foibles will continue to rule.
Read more...Why the Claims Neoliberals Make About Markets Are Wrong
Economists generally, and especially neoliberal economists, take Jevons’s “proof” that markets maximize utility for all participants at face value, and have exalted it into a principle for the organization of society. The proof doesn’t stand up to close examination.
Read more...Secular Stagnation and Capital Flows
Can capital flows mitigate or even eliminate the problems generated by secular stagnation?
Read more...Why The Oil Price Collapse Is U.S. Shale’s Fault
Arthur Berman links overproduction of expensive oil and shale gas to access to cheap financing. In other words, the shale gas boom and bust is in large measure a by-product of ZIRP and QE
Read more...‘National Competitiveness: A Crowbar for Corporate and Financial Interests
We’ve regularly derided the notion of “national competitiveness” as a an inevitable accompaniment to the oversold notion of “free trade”. Economists are aware of, yet choose to ignore, the Lipsey-Lancaster theorem, which says when an idealized state cannot be attained, moving closer to it may not be an improvement; it can often produce worse outcomes. You need to evaluate the “second best” options specifically and not go on faith.
But economists and policy makers treat “free trade” as an article of faith, and with that comes the idea that countries must compete to find customers overseas. There is too little consideration of the fallacy of expecting countries to be competitive and by implication, seek to be exporters. It is impossible for all countries to be net exporters. Moreover, countries are often better served to design their policies primarily for the benefit of domestic workers and markets, and to promote export-oriented programs only to the extent that they do not undermine conditions at home, or will clearly produce a net benefit.
Read more...Why Putin Doesn’t Need To Pander To The West
When sanctions were imposed and tightened against Russia, and oil prices plunged, conventional wisdom in the US press was that the Russian people would not tolerate a decline in living standards and therefore Putin’s days were numbered. In fact, Putin’s approval ratings rose and even most of his opponents in the Moscow intelligensia fell in behind him. Some analysts pointed out that sanctions seldom succeed and were unlikely to work on Russia. That view has become more prevalent as Russia has proven to be less dependent on oil revenues than widely assumed and Russia’s foreign currency reserves have stabilized.
Read more...Why Did Commodity Prices Move Together?
As strange as it may seem, most economists loudly disputed the notion that the rise in commodity prices, particularly in the first half of 2008, was in large measure due to financial speculation. More and more analytical work (such as comparisons of price action in commodities trades on futures exchanges with ones that have large markets but are not exchange-traded, like eggplant, a staple in India, and cooking oil) have dented the orthodox view.
Read more...Federal Credit Programs and the Birth of Lemon Socialism
We regularly criticize government-subsidized lending as a terrible way to achieve policy goals. This interview with Sarah Quinn focuses on how Federal credit subsidies have grown and changed over time, with a major objective being to mask the extent of the support.
Read more...Central Banks Warn: Investors May Get Crushed When They All Run for the Exits
This post illustrates how remarkably short investors’ memories are. Or they may be betting that if they have a big enough hissy fit when monetary authorities raise rates, as they did during the taper tantrum of 2013, that central banks will lose their nerve.
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